PC Retail

You cited difficult market conditions as a reason for the restructure – do you think the IT industry is suffering in Europe in particular at the moment?
I think we came at this at 30,000 feet. The speed at which we saw the economic downturn present itself, as well as the magnitude of it, has caught the industry a bit off guard. There were a number of potential signals sent late Q4 last year, but they were partially masked by strikes and labour unrest in a number of markets.

But it became readily apparent in January, when retail had a poor Q4 and was setting up for a weak Q1, and the malaise spread to corporate reseller segments as well as the SMB sector through much of the quarter.

Inventory was probably built a lot faster than what we needed or anticipated, given the slackening sales demand, and it kept us on our heels for much of the first and into the second quarter.

Is it retailers and resellers that are feeling it the most?
It's interesting that when we talk about the credit crunch, we're only now beginning to see the constriction in the availability of credit in the marketplace. We went into this with a very, very strong balance sheet, allowing us to continue investing in the relationship with past customers and to welcome new customers.

To be honest with you, we haven't felt any constraint in terms of our credit granting processes, in fact we've been adding quite a few new customers throughout this process.

That has not been the case in the second quarter – we've seen a degree of contraction in terms of the amount of credit that is being made available in the channel as some of the smaller players are either reducing the amount of credit that they have fed into the marketplace or have, in fact, closed up shop.

It's only been in the second quarter that we've begun to see some of that withdrawn from the marketplace and organisations like ourselves stepping up to fill the gap. In terms of who is being impacted, I think it is widespread – I think that the entire channel from the retailer level, to the reseller level, to the distributor level, and now to the vendor level, is beginning to experience the impact.

I think the vendors were probably the last to see it and retail was the first to see it. They felt it first, it then backed up into the distribution channel and now it's reached the vendors who are somewhat insulated from this, and didn't see it perhaps as quickly as the rest of the channel. That said, it is backing up into the vendor community as well.

Is this why Ingram Micro rescinded its free freight policy?
As a matter of past practice the IT distribution sector in Europe has absorbed significant freight costs on behalf of resellers and ultimately the end consumer.

With fuel prices continuing to remain at record levels and continuing to have a significant impact on consumers and businesses alike, airlines, tracking companies and even small delivery firms are feeling the impact of these rising costs, and I think it's fair to say we're no exception.

And as a result of these rising fuel costs we have decided that on August 1st Ingram Micro EMEA will implement policies and procedures to recover the full cost of shipping products by means of a freight charge on all customer orders.

You mentioned Ingram Micro EMEA was headed for growth both externally and organically – will you be looking to acquire any rival firms?
We're always mindful. We have a watch list, there are certain segments, there are certain geographies and certain product sets that have more appeal to us, and as a consequence at the right price we would be a buyer of franchises in those particular areas.

We don't feel any urgency, we like our portfolio, we like our position, business is performing well in a very challenging marketplace. And so our main focus is continuing to preserve that which we have, and adding to it on a selective basis when the right opportunity arises at the right price point.

Do you think the landscape of the IT industry is changing due to some of the adverse market conditions you've mentioned? What do you see as the biggest challenges in the next five years?
There are some tos and fros in the landscape that are very hard to read right now, for instance with the big box retailers starting to be much more prominent across Europe and the UK – how is this going to impact consumer versus business – SMB business in particular – buying patterns?

I'm not quite sure how that's going to evolve, with some retailers experiencing a fair degree of problems in this marketplace. Will there be the stability of that particular segment of the market long term that will give confidence to those differing segments?

I had an interesting conversation a little while ago around 'software as a service', and its evolution, as to whether the rising fuel costs and increased shipping costs associated with the delivery of IT products will spur things like software as a service, or more remote processing or more dumb terminals. Especially with the proliferation of high speed internet throughout the developed nations.

There's a lot of potential development on the horizon, and yet I don't see anything that is particularly definitive in terms of a radical reshaping of the value chain or the underlying technologies; I don't think anything that has happened here in the next 12 months will be cited as 'that was the defining moment when…'. I don't think we're yet into that type of space. But depending on just how long we go through this economic downturn, and how much of a shake-up it is in terms of industry participants, it could begin to create some momentum for some fundamental shifts in some of the topics we have just mentioned.

What do you think is the future for small independent retailers? How will they fare against the continued onslaughts of E-tailers, supermarkets and the credit crunch?
I think it should be about value proposition in a niche marketplace. Small retailers can indeed cover a very profitable niche for themselves and it comes back to the point of differentiation on service.

When you go into some of these large box retailers and see the breadth of inventory that they carry, at the price points that they're able to present, because of that purchasing power, you've got to say 'gosh that's an awfully formidable offering in the market place'.

And yet at the same time to try and get the intimacy of service, to try to get someone that can take the time to understand your particular needs and offer you the most appropriate solution to those needs, it's not always easy to do so in that high volume, high turnover format.

I think there's an opportunity for the small retailer to carve out a very profitable existence for themselves within the market, appealing to the unique needs of that marketplace, and just servicing the heck out of the customers.